June 30, 2009 - Having forecast late last year that OPEC capacity would grow by 3.2
million b/d by 2014, the International Energy Agency now sees OPEC capacity growth at just 1.7 million b/d between 2008 and 2014.
Indeed, the IEA sees capacity in two key producers, Iran and Venezuela, actually shrinking over the period.
"Weaker demand, contract renegotiation, reduced cash flow, geopolitical turmoil and increased resource nationalism underpin this year's more modest
outlook," the IEA said in its Medium-Term Oil Market Report released June 29.
"Saudi Arabia, the UAE, Algeria, Libya, Iraq and Angola all see capacity expansion, but these are largely offset by decline elsewhere."
Oil production capacity in Iran, Venezuela and Ecuador is expected to drop by a collective 1 million b/d by 2014 as a consequence of growing
resource nationalism, the IEA said.
"The increasing trend towards resource nationalism among some OPEC countries over the past few years is having a marked impact on crude capacity expansion plans for the outlook period," it said.
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"The upward oil price trend from 2004 to mid-2008, and expectations that capacity constraints would make oil ever more costly, empowered several OPEC members such as Algeria, Ecuador, Iran and Libya to alter production sharing contracts in an effort to capture more of the revenue stream," it said.
"In the case of Venezuela oil assets have been nationalized. As a result, sharply lower production profiles emerged for some countries in the medium term, with Ecuador, Iran and Venezuela now collectively envisaged posting a 1 million b/d drop in production capacity by 2014," it said.
Iranian capacity, seen at 3.97 million b/d in 2008, is forecast to drop by 490,0000 b/d to 3.48 million b/d by 2014.
Venezuelan capacity is seen dropping from 2.62 million b/d in 2008 to 2.2 million b/d in 2014.
Ecuador's capacity is forecast to drop from 500,000 b/d in 2008 to 390,000 b/d by 2014.
Nigerian capacity is also forecast to drift downward from 2.48 million b/d in 2008 to 2.46 million b/d by 2014.
"Iran's challenging political and commercial operating environment, coupled with sharply lower oil revenues, continues to undermine the country's ambitious production expansion plans," the IEA said.
"Already plagued by persistent delays and cancellations of planned projects, IOC interest in developing projects in the country has cooled along with the downturn in the outlook for oil demand," it said, adding that for cost capacity was now around 100,000 b/d below that of a year ago, largely because of stalled plans for Darkhovin lll and Azadegan ll.
"New capacity additions over the 2008-2014 period are a net 470,000 b/d but the escalating decline rates at older onshore fields more than offset the gains," the IEA said.
The IEA said it had been "extremely difficult to develop a robust production capacity forecast for Venezuela given the acute lack of available data and increasingly cloudy investment outlook due to the ongoing nationalization of oil industry assets."
"Because of these issues we have previously retained a 'current capacity extended forward'approach until a clearer picture emerged," it said. "Venezuela has recently released some unaudited data on the country's oil exports, aiming to augment third-party estimates of production levels. Not only does considerable uncertainty over baseline production persist, but so too for future developments in the oil sector and investment plans."
The agency said it was increasingly apparent that the global downturn was likely to have a detrimental impact on Venezuela's oil sector.
It noted that, in response to lower oil revenues and the continued need to fund the government's social welfare programs, Caracas had slashed the budget for Petroleos de Venezuela by 65% this year to $6.1 billion.
"As a result, we have amended our outlook to reflect the acute shortage of investment capital for PDVSA, with capacity expected to decline by 420,000 b/d, from 2.6 2 million b/d in 2008 to 2.2 million b/d in 2014.
The IEA said the outlook for Ecuador had been clouded by the government's severe shortage of investment capital and, given stricter operating terms, it's inability to attract foreign partners.
OPEC kingpin Saudi Arabia's capacity is forecast to rise to 11.22 million b/d this year from 10.74 million b/d in 2008, but the agency said it believed the Kingdom could "surge" to 12.5 million b/d by the end of this year "if the need arose."
The IEA sees Saudi capacity rising to 12.16 million b/d in 2010 before falling back to 12.04 million b/d in 2011 and to 11.83 million b/d in 2012.
It rises again to 11.86 million b/d in 2013 and to 11.97 million b/d in 2014.
"Saudi Aramco will register the largest single incremental capacity increase in history this year with the startup of the massive 1.2 million b/d Khurais development in June 2009," the IEA said, noting that the 250,000 b/d Shaybah expansion and the 100,000 b/d Nuayyim project were also brought on stream in June.
"...combined, the three projects are designed to raise the kingdom's total installed capacity to 12.5 million b/d," it said.
"However, given weak near-term demand, it is unlikely that Saudi Aramco will maintain immediately operable capacity at such elevated levels, and we have assumed operations at some fields could be shut in for rehabilitation or extensive maintenance work during this weaker demand period," it said.
"As a result, a net 1.23 million b/d increase in capacity, to 12 million b/d by 2014, is projected," it added.
"That said, we assume that Saudi Arabia could surge to 12.5 million b/d by end-2009 if the need arose."
UAE capacity is forecast to climb by 330,000 b/d to 3.1 million b/d in 2014, but the IEA said reaching the targeted 3.5 million b/d "will require considerable investment and technological expertise given the Emirates' mature fields and challenging geological basins."
In Kuwait, where capacity is seen rising by just 60,000 b/d to 2.69 million b/d by 2014, "longstanding internal political disagreements between ... parliament and the ruling family over the future role of [international oil company] involvement in the country's oil industry are having a serious impact on the medium-term oil production outlook," the IEA said.
Iraq, it said, "remains the OPEC wild card given constitutional and security issues, and we maintain a cautious view on its supply capacity growth."
The IEA's base case or "higher GDP" scenario sees demand for OPEC crude increasing by around 3.8 million b/d between 2009 and 2014, from 27.68 million b/d this year to 31.45 million b/d in 2014.
Under the alternative, "lower GDP" outlook, however, demand for OPEC crude is forecast to average 27.82 million b/d this year--140,000 b/d more than the base case projection for 2009--and to rise by just 60,000 b/d over the period to 2014.
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